Bank of England says UK lenders could cope with 'disorderly' Brexit — as all banks pass stress tests for the first time

All seven of the UK's biggest lenders pass the Bank of England's 2017 stress test.

2017 marks the first time all banks have passed since the introduction of the tests four years ago.

"The 2017 stress test shows the UK banking system is resilient to deep simultaneous recessions in the UK and global economies, large falls in asset prices and a separate stress of misconduct costs," the BoE said.

Banks would be OK, even in the event of a "disorderly" Brexit, according to the BoE.

LONDON - Britain's major banks all passed the Bank of England's annual stress tests for the the first time since their introduction in 2014, the central bank said on Tuesday morning, adding that UK lenders would be alright even in the event of a "disorderly" Brexit.

"For the first time since the Bank of England launched its stress tests in 2014, no bank needs to strengthen its capital position as a result of the stress test," the Bank of England said in a statement.

The stress test is designed to ensure that banks are in possession of right tools — such as sufficient liquidity and relatively strong capital positions — to weather an economic storm. They were administered to the UK's seven largest lenders — Royal Bank of Scotland, HSBC, Barclays, Lloyds, Santander, Nationwide, and Standard Chartered.

"The 2017 stress test shows the UK banking system is resilient to deep simultaneous recessions in the UK and global economies, large falls in asset prices and a separate stress of misconduct costs," the BoE said.

While all the UK's biggest lenders passed the tests based on their current capital ratios, the Bank of England said that had the test been based on capital positions at the end of 2016, both RBS and Barclays would have been required to take action.

"However, Barclays and RBS have significantly improved their capital positions since the end of 2016.

"If the test were run on the basis of their latest capital positions, both banks would meet their CET1 capital ratio and Tier 1 leverage ratio systemic reference points."

In 2016's test, Royal Bank of Scotland, Barclays, and Standard Chartered came up lacking, with RBS forced to submit plans to the PRA — the BoE's regulatory arm — detailing how it would raise capital and boost resilience to financial shocks.

The Bank of England's Financial Stability report, released in tandem with the stress test results, was positive on the prospects of the UK's banking sector, even if Brexit goes awry.

"The FPC [Financial Policy Committee] judges the UK banking system could continue to support the real economy through a disorderly Brexit," the BoE said.

Brexit coupled with a global recession, however, could be a different story.

"The combination of a disorderly Brexit and a severe global recession and stressed misconduct costs could result in more severe conditions than in the stress test," the bank said.

As part of its recommendations following the stress tests, the Bank of England decided to increase the UK's so-called counter cyclical capital buffer (CCB) from 0.5% to 1%. This move had been telegraphed, with the bank saying in June that it expected to make this change this month.

The move will increase the overall cash buffer in the UK's lenders to around £11.4 billion.

The buffer is put in place to ensure that lenders do not get themselves into the same positions that they did during the financial crisis, protecting themselves from debt going bad and triggering another credit crunch.

This is done by setting aside capital in good times so that banks can keep lending during a downturn, and are protected if customers lose their ability to make repayments on their debt.

Essentially, it is the banking equivalent of putting money aside for a rainy day.